Budget & Tax News

Recap of California Voters' Rejection of Special Election Measures

Taxpayers smartly say no to Sacramento's so-called budget reforms

With the state government in deep financial straits, California voters resoundingly rejected, by nearly a 2-1 margin, the main propositions Gov. Arnold Schwarzenegger and the state legislature had billed as "budget reform measures" in the state's May 19 special election.

The rejected measures all attempted to raise more tax money, borrow, or move funds from other programs into the general fund.

The special election resulted from a February budget deal that attempted to plug an estimated $42 billion budget deficit over 18 months.

In a sign of Californians' frustration and anger toward their elected officials, the only measure to pass was Proposition 1F, which prohibits the governor, members of the legislature, and other statewide constitutional officers from receiving pay raises in years when the state is projected to run a budget deficit. It passed by a 3-1 margin, 74 percent to 26 percent.

"I think this was a stunning victory for California taxpayers and ordinary citizens," said Jon Coupal, president of the Howard Jarvis Taxpayers Association, based in Sacramento. "They spent $35 million and we spent $650,000 and trounced them pretty bad. It sent a message that Californians are taxed enough and that our legislature needs to do its job in prioritizing spending."

Played Both Sides

Proposition 1A was probably the most significant and controversial of the ballot measures. In an attempt to appease both sides of the political aisle-particularly the politically powerful public employees' unions on the left and tax fighter groups on the right-the measure would have extended the tax increases imposed in the February budget deal for up to two years, enhanced the state's rainy-day fund, and enacted a new spending limit.

In the end, the measure's provisions upset both sides. The unions feared the impact of a spending limit, and fiscal conservatives balked at the estimated $16 billion of additional tax increases. The measure failed by a vote of 66 percent to 35 percent.

Proposition 1B would have guaranteed the state would spend an additional $9.3 billion on education to "make up" for the money it was not spending because of the current fiscal crunch. Proposition 1B would have gone into effect only if Proposition 1A also had passed, in an obvious attempt to buy the support of the teachers' unions for Proposition 1A or at least keep them from campaigning against it. The proposal ultimately failed anyway, and the measure went down by a 63-37 vote.

Lottery Borrowing Rejected

Proposition 1C would have allowed the state to borrow against the future revenues of the California State Lottery. According to the February budget deal, the state was relying on the passage of 1C for $5 billion in such funds, although the measure did not place any limit on the amount that could be borrowed, so the state could have borrowed even more from the lottery in the future.

Voters apparently thought it was too much of a gamble for a state already drowning in debt, and the measure failed by a 64-36 vote.

Funds Diversion Defeated

Propositions 1D and 1E both sought to take money from dedicated funds established previously by voter initiatives and transfer them to the General Fund to help address the budget shortfall.

Proposition 1D would have redirected up to $608 million in funding currently dedicated to children's health and human services programs in FY 2009-10, and $268 million a year from FY 2010-11 through 2013-14. Proposition 1E would have redirected approximately $230 million a year for two years from funds currently dedicated to mental health programs.

As with Proposition 1C, the February budget deal assumed these measures would be approved by voters. Instead, voters rejected the measures by votes of 66-34 and 67-33, respectively.

California now faces a projected budget shortfall of $24 billion. Schwarzenegger supported the plan even though he entered office speaking with much fanfare of "blowing up the boxes of government" and "cutting up the credit cards." Schwarzenegger was elected to office during the recall election of former Gov. Gray Davis, who was ousted chiefly for his fiscal mismanagement.

Governor Vowed No More Trouble

In 2004, while campaigning for Proposition 58, which established a state rainy-day fund, Schwarzenegger argued, "By voting yes on Proposition 58, you are basically taking the credit cards, cutting them up, and throwing them away so that the politicians over there [at the Capitol], those big spenders, will never, ever, get the state into this kind of trouble again." The proposition passed by a big margin, gaining nearly 72 percent of the vote.

During the same election, the governor lobbied voters to approve $15 billion in "Economic Recovery Bonds" (Proposition 57) offered as a one-time fix to get California out of a budget hole so the state's fiscal woes could be solved once and for all, with promises the state could start anew. Five years later, the state is in an even bigger fiscal mess.

State budget analysts and policy researchers have pointed out that if California had simply held spending to the rate of growth in population plus the cost of living since former Gov. Pete Wilson first came to office in fiscal year 1990-91, the state would have been sitting on a $15 billion surplus instead of the $42 billion deficit it faced earlier this year.

Coupal cited this as one reason millions of Californians believe the state's lawmakers "are incapable of being fiscally responsible. The margin of defeat [of the Propositions] is as important as the victory for taxpayers. The governor, the unions, and most major corporations supported the propositions, yet the people rejected them. This sent a huge message."

Adam B. Summers is policy analyst at Reason Foundation. This column originally appeared in Budget & Tax News.